Should You Take on a Home Mortgage?
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by: marciafreeman
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For ten weeks in a row, interest rates for a 30 year fixed rate home mortgage have been hovering at the lowest point in decades. There has, consequently, been a jump in the number of consumers applying for a new mortgage. A large number of those consumers are, unfortunately, being denied those new mortgages. Banks are requiring that borrowers meet more rigid requirements. Consumers need a high credit score to be considered for mortgages at the lower rates. 20 percent equity in a current home or a 20 percent down payment are becoming the norm to be eligible for a new mortgage. Consumers who cannot meet the current standards may be able to find a home mortgage at a significantly higher rate, as well as with a requisite home mortgage insurance policy. In spite of the low rates, some home buyers are choosing to sit out the real estate roller coaster a bit longer. Many fear home values are not yet at their bottom. Others would simply prefer not to take on a home mortgage in the current economy. Real estate columnists are abuzz with the idea of renting versus owning. Both have their advantages and disadvantages, but it comes down to what makes financial sense for your budget and situation.
Before you consider whether you should rent or take on a home mortgage, you should think about how long you intend to be in the house. The bulk of payments made on a home mortgage the first handful of years is heavily weighted toward paying interest, rather than equity. Additionally, you will need to pay for an inspection, appraisal, documentation details, lawyer fees and other closing costs. If you plan to move and sell the house in two years, then renting might make more sense financially. Interest paid on your home mortgage is tax deductible, but rent is not. In many markets, though, rent is not on par with house prices. For example, to rent a house in Washington DC, your monthly rent would be significantly lower than what your monthly mortgage payments would be for the same house. You can invest the money you saved by not having a big home mortgage payment and you might come out ahead in the long run. There are emotional considerations when you compare renting versus buying. As a renter, you would not be able to make changes to the property like you would if you owned it. As a tenant, you may also have to move out at the end of the term on your lease. You may have the responsibility of a home mortgage as a homeowner, but you also have pride of ownership and will build equity while you have a roof over your head.
It is unclear if home mortgage rates will continue to decrease or will slowly make their way up this year. Not willing to gamble, some consumers are choosing to take on a home mortgage or refinance their current mortgage with the current rates. If you decide that buying makes more sense for your financial plan and future than renting, then now is a great time to shop around for a home mortgage.
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